Changes in Turkish Regulation Strengthen SDIF

Changes in Turkish Regulation Strengthen SDIF

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With the “Act Amending Banking Law, Some Other Laws and the Decree no. 655” [“Amending Act”], Banking Law no. 6411 [“Banking Law”] and Act no. 6758 on the Approval of a Decree with Amendments [“Act no. 6758”] was amended with respect to the articles regarding the authorities and responsibilities of the Savings Deposit Insurance Fund – the so-called “TMSF” [“SDIF”].

Below are some of the most important amendments included within the Amending Act:

Scope of Savings Insured by the SDIF Were Expanded

Prior to the amendment, the scope of SDIF insurance was limited to “savings and participation funds belonging to real persons stored in credit institutions”. With the Amending Act, this scope has been expanded to include all savings deposit accounts and participation funds except for those belonging to state institutions, credit institutions or financial institutions. The primary objective of this change is to include commercial deposits and commercial participation shares belonging to corporations in SDIF insurance. Moreover, this amendment means that SDIF legislation is now in compliance with International Association of Deposit Insurers standards, which was also adopted by the European Union.

On the other hand, several types of deposit accounts and participation funds were also added as exceptions to SDIF insurance in order to cover possible gaps that could arise under the Banking Law due to the expansion of insurance. In this context, qualified shareholders, companies controlled by controlling shareholders and qualified shareholders and companies controlled by managers of financial institutions holding the deposit account are not covered by SDIF insurance. Fund Board may also exclude other deposit accounts and participation funds from the insurance scope apart from those listed in the article.

Conditions of Commercial and Economic Integrity Sales Have Changed

Another outcome of the amendments to the Banking Law regarding authorities of the SDIF is the expansion of SDIF’s authority to bundle up assets in a “commercial and economic integrity” in order to sell them as a whole.

After the Amending Act, rights arising from licensing and concession agreements can be sold as a commercial and economic integrity along with assets seized for the collection of SDIF receivables, relevant financial leases and other rights arising from agreements regarding such assets. These sales will be announced by the Fund Board on the Official Gazette along with the order table, which will be subject to objection for 15 [fifteen] days.

With the changes to Act no. 6758, the Fund Board was also authorised to pay off outstanding debts of the commercial and economic integrity or have such debts paid off by the acquiring party as long as the relevant debt arises from a valid commercial transaction with persons that are not in connection or cooperation with the FETÖ/PDY terrorist group, and that the transaction fulfils the requirements set forth in Act no. 5411 Article 134.

SDIF Authority Over Trusteeship Operations Were Expanded

Another important amendment to Act no. 6758 came in the form of the expansion of SDIF authorities upon companies in which the institution acts as a trustee. In accordance with this amendment, SDIF is now authorised to sell off the assets of the company fully or partially, and may even decide on its liquidation. The Fund Board may decide to form new companies with the same shareholding structure as the original company, and these new companies will be registered by the relevant registry without the shareholders’ consent, or the fulfilment of the usual requirements set out in Turkish Commercial Code [“TCC”].

SDIF will also be able to exercise the authorities of the general assemblies of shareholders in its trusteeship operations without being subject to the relevant TCC legislation. Therefore, the SDIF can decide on a demerger or sale of the company without the need for a general assembly resolution, while also being able to elect board of directors members and other officials regardless of TCC or the articles of association. SDIF can also decide to distribute dividends to “shareholders that are not convicted of connection or cooperation to terrorist organisations or organisations and groups determined to pose a threat to national security”.

SDIF Control Over Banks in Liquidation Tightened

Along with the changes described above, a new article added to the Banking Law provides for the exclusion of the liquidated bank’s controlling shareholders and managers, qualified shareholders, legal persons connected to such persons, persons responsible for the liquidation and persons that are criminally convicted of or subjected to confiscation due to connection or cooperation to terrorist organisations or organisations and groups determined to pose a threat to national security from the distribution of the remaining assets after the finalisation of liquidation. The assets will instead be transferred to the Treasury.

Changes in SDIF Administrative Organisation

While the authority of SDIF were expanded with all these changes, some changes were also made to streamline the administration of SDIF. In this context, number of vice-presidents were increased and a maximum of twelve departments and a maximum of six directorates were decided to be formed.

Conclusion

Some provisions of the Amending Law expand the scope of SDIF insurance and ensure the compliance of Turkish banking practice with international standards.

However, the other changes brought with the Amending Law grant SDIF full control over its trusteeship operations and banks in liquidation by enabling it to decide on the demerger, sale, or liquidation of corporations. Therefore, such a wide range of authorities may cause concerns about predictability for existing shareholders, and even cause discussion and possible litigation on property rights in the near future.

By Tarik Gueryuz, Partner, and Aziz Can Cengiz, Junior Attorney, Guleryuz & Partners